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Why Americans still aren't saving enough

November 30, 2012

| Money Rates Columnist

With private pensions largely disappearing and the long-term solvency of Social Security in question, paying for the bulk of retirement now sits squarely on the shoulders of many of today's workers. However, many policymakers and financial experts continue to report that workers are saving far too little and far too late.

Three recent studies attempt to provide some insight into the problem. Collectively, they suggest that while some pro-saving government policies may not be helping most workers reach their retirement targets, the savers who are meeting their goals may not be reliant on those incentives anyway.

Retirement savings lag and policies may not be helping

Retirement savings may be lagging in part because many workers underestimate how much money they will need to live comfortably once they stop working, according to a new study by LIMRA, a financial services industry organization.

Their survey found that pre-retirees between the ages of 55-70 believe, on average, they will need less than two-thirds of their current income once they stop working. However, the LIMRA study says that financial experts typically recommend workers should plan to live on 70 to 80 percent of their current income in retirement.

But unfortunately, tax policies intended to encourage saving may not be improving the situation, according to a new study by Harvard University. To encourage workers to save more, the U.S. government spends more than $100 billion a year in tax incentives for workers investing in accounts such as 401(k)s and IRAs. However, the Harvard study questions whether this money has actually spurred more savings.

Since U.S. data is "inadequate," according to the study, the researchers looked at data from Denmark to draw their conclusions. They found that although government subsidies encourage workers to put money in tax-advantaged funds, the incentives did not produce an overall increase in savings.

Rather, the incentives result in workers shifting their savings to accounts such as 401(k)s and IRAs from other savings vehicles such as CDs, money market accounts and other investments. The Harvard study determined that for every dollar the government spent on incentives, net savings only increased a single cent.

Careful planning works best -- just ask the wealthy

While policymakers may be searching for a way to encourage more savings, a survey from Wells Fargo indicates there may be no magic formula to entice workers to save more. Instead, many of those who have indicated they feel confident they have enough for retirement may have reached that point through old-fashioned planning -- and maybe having a little extra to set aside.

Many in the Wells Fargo study who said they are confident in their ability to retire were defined as affluent, meaning they have more than $250,000 in investable assets. Overall, 88 percent of affluent survey respondents said they are confident in their ability to retire, compared to 57 percent of those with less than $250,000 in investable assets.

While it may be easier for affluent workers to save for retirement because of their extra income, the survey claims that the planning affluent workers use may also be a major factor in their confidence. These tactics include creating a written plan for finances in retirement and developing detailed plans and calculations to determine the amount of money they will need.

Fortunately, though, many of the tactics used by the affluent to plan can be used by workers of every income and asset level. So if those incentives to save from the government haven't worked, drafting a detailed retirement plan may be the next logical step for savers.

Your responses to ‘Why Americans still aren't saving enough’

Showing 7 comments | Add your comment
Terry Schulze

6 December 2012 at 3:25 pm

Let's see why I am not saving any money. Maybe Higher gas prices, Maybe higher food prices and the dollar don't buy much when we have two these factors.


6 December 2012 at 1:18 pm

The cost of saving money seems lower than taking on a low interest rate loan/debt. So, that's why I don't save.

Keith P

5 December 2012 at 6:38 pm

Why save? The government is taxing everything you can save at higher and higher rates, and is now looking at taking 401k's and IRAs and placing them in government run accounts.


5 December 2012 at 1:59 pm

Why should people save for retirement?? Obama and the Dumbocrats are telling people to rely on Uncle Sam for all their needs - food, shelter, clothing, transportation, communication, medical care. Anyone who accumulates money and doesn't spend it, is called "rich", and Dumbocrats want to penalize those people. I have more than $250,000 saved. It's taken me 30 years to do that. I'm not rich. I don't buy new cars or take expensive vacations. I don't buy the latest and greatest anything. I don't buy a new cellphone every year or so.

Marc Moeller

5 December 2012 at 10:50 am

Most people (including the author) as usual are missing the MAIN point. There is absolutely no incentive to save because the dollar declines so much in value every year. This decline cannot possibly be matched by advertised interest rates on most if not all financial products. Spend the money now or invest in real property or a business otherwise you'll find your future money being worth much less than you thought it would be in any mutual fund or CD. I've been saving money for well over 20 years in various mutual funds and the bottom line is that my money would be worth more today had I stuffed my monthly 15% savings into a mattress. I did not invest in outrageously risky ventures either - did the standard index funds and a few aggressive growth funds here and there. People always comment that things are much more expensive nowadays. No one ever says, "Gee, the dollar is worth so much less nowadays." Two sides of the same coin. The point is the government will continue to spend and spend until the dollar has seen it's last breath. Then it won't matter that the "evil" Republicans have increased the social security eligibility age or the "feckless" Democrats have given those on SS an extra $200/month in their checks. SS will be bankrupt! Get it now? Both parties have destroyed the dollar together and share the ultimate blame. But as usual most people don't care and just want their little treats and handouts not realizing Ds and Rs together in power will have the last laugh. This truth should sicken every sentient person in this country and be cause for a revolution. Not holding my breath, just preparing for the ultimate colapse of a ruined and unsustainable fiat currency.

Allan R.

4 December 2012 at 2:16 pm

The primary reason is that too many do not have the will power to defer buying things that they want. It is the symptom told by the results of a study started in 1972 by a Stanford psychologist with children and a bag of marshmellows. A marshmellow was placed on a table in front of each of a group of kids with an indication that those who waited 15 minutes before eating it would get a second. About 2/3rds gobled it down immediately. A study of the group followed to see how their lives were going. The kids who deferred eating the marshmellow had SAT scores 210 points higher than the goblers, were less likely to drop out of college, made far more money, were less likely to go to jail and suffered fewer drug and alcohol problems. That goes to show that delayed gratification and a bit of hardship can be of significant benefit. Hardship might just involve the time and expense of furthering one's education, be it in a trade school or college or it just might be deferring purchasing wants by saving for retirement.

Mike English

4 December 2012 at 8:04 am

"...the U.S. government spends more than $100 billion a year in tax incentives..." Are you serious with this? The gov't doesn't spend a damn thing. It simply takes less away from workers.

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